For the third quarter of 2018, net income available to common shareholders was $1.4 million, or $0.19 per diluted share, which included $0.3 million of preferred stock dividends. This compares to $0.5 million, or $0.08 per diluted share, for the second quarter of 2018, which included $0.6 million of preferred stock dividends, and $0.5 million, or $0.08 per diluted share, for the third quarter of 2017, which included $0.6 million of preferred stock dividends.

“We delivered a strong quarter of improvement in our financial results, with our earnings per share increasing 138% from the prior quarter and generating a higher level of return on assets and return on equity,” said Scott C. Wylie, CEO of First Western. “We executed on the near-term drivers of earnings growth that we identified including redeeming our higher cost capital and streamlining our cost structure. As a result of our expense reduction actions, our operating efficiency ratio improved to 83.0% from 88.8% last quarter. We were able to generate solid growth in total loans, although not at the level we anticipated. Over the past year, we have made a number of enhancements to our business development platform that we expect to positively impact our client acquisition efforts in the future. As we gain more traction in business development, we expect to generate a higher level of revenue, realize greater operating leverage, and drive further earnings growth that we believe will create additional value for our shareholders.”

For the Three Months Ended

September 30,

June 30,

September 30,

(Dollars in thousands, except per share data)

2018

2018

2017

Earnings Summary

Net interest income

$

7,788

$

7,577

$

7,375

Less: Provision for credit losses

18

—

306

Total non-interest income

6,638

6,892

6,745

Total non-interest expense

12,176

13,084

12,134

Income before income taxes

2,232

1,385

1,680

Income tax expense

543

337

632

Net income

1,689

1,048

1,048

Preferred stock dividends

(255

)

(562

)

(584

)

Net income available to common shareholders

$

1,434

$

486

$

464

Basic and diluted earnings per common share

$

0.19

$

0.08

$

0.08

Return on average assets

0.65

%

0.41

%

0.43

%

Return on average shareholders' equity

6.01

%

3.99

%

4.26

%

Return on tangible common equity(1)

1.62

%

0.89

%

0.93

%

Net interest margin

3.29

%

3.29

%

3.35

%

Efficiency ratio(1)

82.96

%

88.84

%

84.62

%

(1) Represents a Non-GAAP financial measure. See “Reconciliation of Non-GAAP Measures” for a reconciliation of our Non-GAAP measures to the most directly comparable GAAP financial measure.

Operating Results for the Third Quarter 2018

Revenue

Gross revenue (total income before non-interest expense, less gains on securities sold, plus provision for credit losses) was $14.4 million for the third quarter 2018, compared to $14.5 million for the second quarter of 2018. The slight decline in revenue was driven by a $0.3 million decrease in non-interest income, primarily due to a decline in mortgage activity. This was partially offset by a $0.2 million increase in net interest income.

Relative to the third quarter of 2017, gross revenue increased $0.3 million from $14.1 million. The increase was attributable to a $0.4 million increase in net interest income, partially offset by a $0.1 million decrease in non-interest income.

Net Interest Income

Net interest income for the third quarter of 2018 was $7.8 million, an increase of 2.8% from $7.6 million in the second quarter of 2018. The increase in net interest income from the second quarter was primarily attributable to higher average loan balances.

Relative to the third quarter of 2017, net interest income increased 5.6% from $7.4 million. The increase in net interest income from the third quarter of 2017 was primarily driven by higher average loan balances.

Net Interest Margin

Net interest margin for the third quarter of 2018 was 3.29%, unchanged from the second quarter of 2018. An 8 basis point increase in the average yield on loans, from 4.34% to 4.42%, was offset by a 9 basis point increase in the average cost of funds, from 0.84% to 0.93%.

Relative to the third quarter of 2017, the net interest margin decreased from 3.35%. A 3 basis point increase in the average yield on loans was offset by a 24 basis point increase in the average cost of funds.

Non-interest Income

Non-interest income for the third quarter of 2018 was $6.6 million, a decrease of 3.7% from $6.9 million in the second quarter of 2018. The decrease was primarily attributable to lower net gains on mortgage loans sold as a result of a lower volume of mortgages sold in the quarter. This was partially offset by a 1.7% increase in trust and investment management fees due to growth in assets under management.

Non-interest income decreased 1.6% from $6.8 million in the third quarter of 2017, primarily as a result of a decline in trust and investment management fees and bank fees, partially offset by higher net gains on mortgage loans sold.

Non-interest Expense

Non-interest expense for the third quarter of 2018 was $12.2 million, a decrease of 6.9% from $13.1 million for the second quarter of 2018. The decrease was primarily attributable to lower salary expense and employee benefits expense as a result of streamlining the cost structure in certain areas of the Company, as well as lower professional fees.

Relative to the third quarter of 2017, non-interest expense was essentially flat.

The Company’s efficiency ratio was 83.0% in the third quarter of 2018, compared with 88.8% in the second quarter of 2018 and 84.6% in the third quarter of 2017.

Income Taxes

The Company recorded income tax expense of $0.5 million for the third quarter of 2018, representing an effective tax rate of 24.3%, compared to 24.3% for the second quarter of 2018 and 37.6% for the third quarter of 2017. The decrease in the effective tax rate in the third quarter of 2018, as compared to the third quarter of 2017, was attributable to the reduction in the federal corporate tax rate that was effective January 1, 2018.

Loan Portfolio

Gross loans, excluding mortgage loans held for sale, totaled $857.3 million at September 30, 2018, compared to $842.6 million at June 30, 2018 and $789.9 million at September 30, 2017. The increase in total loans from June 30, 2018, was primarily attributable to growth in the 1-4 family residential portfolio.

Deposits

Total deposits were $878.6 million at September 30, 2018, compared to $843.7 million at June 30, 2018, and $813.0 million at September 30, 2017. The increase in total deposits from June 30, 2018 was due to an increase money market deposits, primarily attributed to an increase in trust account related deposits.

Assets Under Management

Total assets under management increased by $210.2 million during the third quarter to $5.63 billion at September 30, 2018, compared to $5.42 billion at June 30, 2018 and $5.18 billion at September 30, 2017. The increase in assets under management from June 30, 2018 was primarily attributable to new client acquisitions and an increase in managed trust assets.

The increase from September 30, 2017 was due to increases across most asset categories, driven by contributions and market gains.

Credit Quality

Non-performing assets totaled $19.0 million, or 1.81% of total assets, at September 30, 2018, an increase from $3.7 million, or 0.35% of total assets, at June 30, 2018. Approximately $11.3 million of the increase was related to a Cash, Securities, and Other loan. The credit is currently in the workout process and no specific reserve was required during the third quarter of 2018. The remainder of the increase in non-performing assets was related to administrative delays in renewing two credits that matured during the quarter.

The Company did not record any charge-offs in the third quarter. This marked the seventh consecutive quarter of no net charge-offs.

The Company recorded an immaterial amount of provision for loan losses for the third quarter of 2018. The modest provision reflected the lack of net charge-offs.

Capital

At September 30, 2018, First Western (“Consolidated”) and First Western Trust (“Bank”) exceeded the minimum capital levels required by their respective regulators, as summarized in the following table:

September 30,

2018

Consolidated Capital

Common Equity Tier 1(CET1) to risk-weighted assets

11.22

%

Tier 1 capital to risk-weighted assets

11.22

%

Total capital to risk-weighted assets

12.90

%

Tier 1 capital to average assets

9.09

%

Bank Capital

Common Equity Tier 1(CET1) to risk-weighted assets

10.42

%

Tier 1 capital to risk-weighted assets

10.42

%

Total capital to risk-weighted assets

11.31

%

Tier 1 capital to average assets

8.45

%

Conference Call, Webcast and Slide Presentation

The Company will host a conference call and webcast at 10:00 a.m. MT/ 12:00 p.m. ET on Friday, October 26, 2018. The call can be accessed via telephone at 877-405-1628; passcode 8376176. A recorded replay will be accessible through November 2, 2019 by dialing 855-859-2056; passcode 8376176.

A slide presentation relating to the third quarter 2018 results will be accessible prior to the scheduled conference call. The slide presentation and webcast of the conference call can be accessed on the Events and Presentations page of the Company’s investor relations website at https://myfw.gcs-web.com.

About First Western Financial Inc.

First Western Financial, Inc. is a financial services holding company headquartered in Denver, Colorado, with operations in Colorado, Arizona, Wyoming and California. First Western and its subsidiaries provide a fully integrated suite of wealth management services on a private trust bank platform, which includes a comprehensive selection of deposit, loan, trust, wealth planning and investment management products and services. First Western’s common stock is traded on the Nasdaq Global Select Market under the symbol “MYFW.” For more information, please visit www.myfw.com.

Non-GAAP Financial Measures

Some of the financial measures included in this press release are not measures of financial performance recognized in accordance with generally accepted accounting principles in the United States (“GAAP”). These non-GAAP financial measures include “Tangible Common Equity,” “Tangible Common Book Value per Share,” “Return on Tangible Common Equity,” “Efficiency Ratio,” and “Gross Revenue.” The Company believes these non-GAAP financial measures provide both management and investors a more complete understanding of the Company’s financial position and performance. These non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP financial measures. Not all companies use the same calculation of these measures; therefore, this presentation may not be comparable to other similarly titled measures as presented by other companies. Reconciliation of non-GAAP financial measures, to GAAP financial measures are provided at the end of this press release.

Forward-Looking Statements

Statements in this news release regarding our expectations and beliefs about our future financial performance and financial condition, as well as trends in our business and markets are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project,” “outlook,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” The forward looking statements in this news release are based on current information and on assumptions that we make about future events and circumstances that are subject to a number of risks and uncertainties that are often difficult to predict and beyond our control. As a result of those risks and uncertainties, our actual financial results in the future could differ, possibly materially, from those expressed in or implied by the forward looking statements contained in this news release and could cause us to make changes to our future plans. Those risks and uncertainties include, without limitation, the risk of geographic concentration in Colorado, Arizona, Wyoming and California; the risk of changes in the economy affecting real estate values and liquidity; the risk in our ability to continue to originate residential real estate loans and sell such loans; risks specific to commercial loans and borrowers; the risk of claims and litigation pertaining to our fiduciary responsibilities; the risk of competition for investment managers and professionals; the risk of fluctuation in the value of our investment securities; the risk of changes in interest rates; and the risk of the adequacy of our allowance for credit losses and the risk in our ability to maintain a strong core deposit base or other low-cost funding sources. Additional information regarding these and other risks and uncertainties to which our business and future financial performance are subject is contained in our Prospectus filed with the U.S. Securities and Exchange Commission (“SEC”) dated July 18, 2018 (“Prospectus”), and other documents we file with the SEC from time to time. We urge readers of this news release to review the Risk Factors section of that Prospectus and the Risk Factors section of other documents we file with the SEC from time to time. Also, our actual financial results in the future may differ from those currently expected due to additional risks and uncertainties of which we are not currently aware or which we do not currently view as, but in the future may become, material to our business or operating results. Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this news release, which speak only as of today’s date, or to make predictions based solely on historical financial performance. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.